Cole, Rebel A. and Fenn, George W. (1996): The role of commercial real estate investments in the banking crisis of 1985-92.
Download (197kB) | Preview
This article examines the role of commercial real estate investments in the banking crisis of 1985-92, an unprecedented period during which more than 1,300 banks failed. Bank failures are fundamentally important because of the unique role played by financial institutions in the provision of business credit. We discover three striking features of banks failing during this period. First, commercial real estate was only a factor in the bank failures of 1988-92. Second, construction loans played a much larger role in bank failures than permanent loans, and the relationship is strongest with construction loans booked during 1983-1985. Third, other ex ante risk measures are systematically related to banking failure throughout the sample period. These results suggest that risk-seeking banks brought about their own demise and commercial real estate, especially construction lending, was one of the vehicles.
|Item Type:||MPRA Paper|
|Original Title:||The role of commercial real estate investments in the banking crisis of 1985-92|
|Keywords:||bank; bank failure; commercial bank; commercial real estate; construction lending; real estate|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
|Depositing User:||Prof. Rebel Cole|
|Date Deposited:||30. Aug 2010 00:45|
|Last Modified:||15. Feb 2013 23:26|
Cole, R. 1993. When Are Thrift Institutions Closed? An Agency-Theoretic Model. Journal of Financial Services Research 7: 283-308.
Cole, R. and R. Eisenbeis. 1996. The Role of Principal-Agent Conflicts in the Thrift Crisis. Real Estate Economics 24: 195-218.
Cole, R. and J. Gunther. 1995. Separating the Likelihood and Timing of Bank Failure. Journal of Banking and Finance 19: 1073-1089.
Cole, R., McKenzie, J. and L. White. 1995. Deregulation Gone Awry: Moral Hazard in the Savings and Loan Industry. In The Causes and Costs of Depository Institution Failures. Kluwer Academic Publishers: Norwell, MA. 29-74.
Diamond, D. 1984. Financial Intermediation and Delegated Monitoring. Review of Economic Studies 51: 393-414.
Fergus, J. and J. Goodman. 1994. The 1989-92 Credit Crunch for Real Estate: A Retrospective. Real Estate Economics 22: 5-32.
Hancock, D. and J. Wilcox. 1994a. Bank Capital, Loan Delinquencies, and Real Estate Lending. Journal of Housing Economics 3: 121-46.
Hancock, D. and J. Wilcox. 1994b. Bank Capital and the Credit Crunch: The Roles of Risk-Weighted and Unweighted Capital Regulations. Real Estate Economics 22: 59-94.
Hester, D. 1992. Financial Institutions and the Collapse of Real Estate Markets. In Real Estate and the Credit Crunch: Proceedings of a Conference Held in September 1992, edited by L. Browne and E. Rosengren. Boston: Federal Reserve Bank of Boston, 114-135.
Maddala. G.S. 1983. Limited-Dependent and Qualitative Variables in Econometrics. Cambridge University Press: New York, NY.
Peak, J. and E. Rosengren. 1994. Bank Real Estate Lending and the New England Capital Crunch. Real Estate Economics 22: 33-58.
Randall, R. 1993. Lessons from New England Bank Failures. New England Economic Review, 13-38.
Stiglitz, J. and A. Weiss. 1981. Credit Rationing in Markets with Imperfect Information. American Economic Review 71: 393-410.